Strength in Overseas Markets Helped Set Today’s Tone

Cusick’s Corner
Stock market averages moved higher through midday and extended the gains in afternoon action Wednesday. Strength in overseas markets, including a 2.4 percent rally in Hong Kong and a 2.1 percent advance in France, seemed to help set the tone for steady trading at the open. On the domestic economic news front, a report on 1st quarter economic growth showed annual growth of 1.8 percent. Economists were expecting Q1 GDP to print at 2.5 percent and the lackluster number might have eased some of the recent investor anxiety about the Federal Reserve removing stimulus in the months ahead. Elsewhere, crude oil edged up 12 cents to $95.44 in the wake of weekly inventory data and the bloodshed continues in gold. The metal lost $50 to $1225. But on Wall Street, the Dow was up 150 points and the NASDAQ added 28.3 points.

Las Vegas Sands (LVS) added 68 cents, or 1.3 percent, to $51.39 in active trading of 10 million shares and has been trying to recover losses suffered amid weakness in many casino names on concerns about a slowdown in Macau. The stock shed 12.3 percent in a week (through Monday) before seeing a modest rebound today and yesterday. Options on Las Vegas Sands were busy today as well. 29,000 calls and 11,000 puts traded in the name. July 52.5 calls, which are now 2.2 percent out-of-the-money and expiring in 22 days, were the most active in LVS. 6,250 contracts changed hands. July and August 55 calls saw brisk trading as well and 30-day implied volatility in the options on the stock eased 3.5 percent to 33.5.

Bullish trading was also seen in Cheniere Energy (LNG), Pandora (P) and Supervalu (SVU).

Newmont Mining (NEM) dropped $1.72, or 5.9 percent, to $27.21 in heavy trading of 14 million shares on another day of volatile action in the metals market. Options on the gold miner were very busy as well. 31,000 calls and 40,000 puts traded on the stock. The top trade in NEM was a 6,600-contract block of Jan 19 puts traded for 76 cents per contract when the market was 73 to 76 cents. At the end of the day, more than 10,000 Jan 19 puts traded in NEM against 467 in open interest, as some investors were possibly buying some downside “disaster” insurance for fear of further losses in the name. Jan 25 and 28 puts on the stock were busy as well and implied volatility in NEM options was up 12 percent to 42.5.

Bearish trading was also seen in Goldcorp (GG), Opko Health (OPK), and Qlik Technologies (QLIK).

Index Trading
Implied volatility was broadly lower across the options market for a second day. CBOE Volatility Index (VIX) dropped 1.64 to 18.47 Tuesday and lost another 1.26 to 17.21 today. Yet, actual levels of market volatility seem rather elevated. For instance, the Dow has seen triple digit moves in 14 of the past 18 trading sessions. Meanwhile, the actual or historical volatility of the S&P 500, as measured by the annualized standard deviation of closing prices over the past thirty days, is now 17.4 percent. Since VIX measures the expected or implied volatility of SPX options, are reading of 17.2 isn’t too surprising. It is consistent with the actual or historical volatility of the S&P over the past thirty days.

ETF Action
More than a half million options traded on the SPDR Gold Fund (GLD) Wednesday. GLD, which represents ownership in the metal stored in bank vaults, lost $5.19, or 4.2 percent, to $118.28 and fell to its lowest levels since the summer of 2010. 316,000 calls and 208,000 puts traded on the ETF, which is 3X the daily average. September 130, July 123, and August 130 calls were the most actives, as some contrary-minded investors were possibly taking positions in upside calls on hopes for a rebound. Meanwhile, implied volatility in GLD options, as measured by the GVZ Index, saw a 5.57-point spike to 31.43.